The LAR-family protein tyrosine phosphatase sigma (PTPsigma, encoded by the gene Ptprs) consists of a cell adhesion-like extracellular domain composed of immunoglobulin and fibronectin type-III repeats, a single transmembrane domain and two intracellular catalytic domains. It was previously shown to be expressed in neuronal and lung epithelial tissues in a developmentally regulated manner. To study the role of PTPsigma in mouse development, we inactivated Ptprs by gene targeting. All Ptprs+/- mice developed normally, whereas 60% of Ptprs-/- mice died within 48 hours after birth. The surviving Ptprs-/- mice demonstrated stunted growth, developmental delays and severe neurological defects including spastic movements, tremor, ataxic gait, abnormal limb flexion and defective proprioception. Histopathology of brain sections revealed reduction and hypocellularity of the posterior pituitary of Ptprs-/- mice, as well as a reduction of approximately 50-75% in the number of choline acetyl transferase-positive cells in the forebrain. Moreover, peripheral nerve electrophysiological analysis revealed slower conduction velocity in Ptprs-/- mice relative to wild-type or heterozygous animals, associated with an increased proportion of slowly conducting, small-diameter myelinated fibres and relative hypomyelination. By approximately three weeks of age, most remaining Ptprs-/- mice died from a wasting syndrome with atrophic intestinal villi. These results suggest that PTPsigma has a role in neuronal and epithelial development in mice.